Even after reinstating fares, the Kansas City Area Transportation Authority (KCATA) is warning of route reductions because the agency says city funding will fall short of maintaining current service levels. KCATA estimates it needs more than $100 million to preserve existing operations, well above the city’s proposed contribution.

The immediate concern is fewer routes and longer waits for riders. But the larger issue is institutional: KCATA is confronting the long-term consequences of policy decisions that weakened its financial position and eroded confidence among regional partners.

Those problems did not emerge overnight. For years, KCATA relied on temporary funding, emergency appropriations, and optimistic revenue assumptions. Pandemic-era federal aid masked those weaknesses but did not resolve the structural imbalance between operating costs and recurring revenue.

The clearest example was KCATA’s heavily promoted fare-free transit initiative. Supporters argued eliminating fares would improve mobility and reduce barriers for low-income riders. But even at the time, research and the experience of other cities suggested the policy was financially unsustainable.

Fare-free transit eliminated one of the system’s few direct revenue streams while increasing dependence on taxpayer subsidies. Transit fares rarely cover operating costs, but they still provide revenue and impose some fiscal discipline. When federal pandemic aid expired, KCATA faced familiar financial pressures with even fewer tools available to address them.

Acknowledging that reality, KCATA recently announced fares will return next month. Restoring fares amounts to an acknowledgment that the model was not sustainable.

The consequences extend beyond Kansas City itself. Regional transit systems depend on trust among local governments—trust that erodes when the central agency faces recurring fiscal problems.

Some regional governments have already moved to retain greater operational control over their own transit services. In 2022, Johnson County, Kansas, ended KCATA management oversight of its transit operations while continuing limited coordination through the RideKC brand. More recently, several suburban municipalities—including Gladstone, Grandview, and Raytown—have reduced or ended participation in RideKC service.

Obviously, public transit serves a purpose. Many Kansas City residents still rely on buses to reach work, school, and appointments. Like transit agencies nationwide, KCATA is operating in a difficult post-pandemic environment shaped by inflation, labor shortages and changing ridership patterns.

But those challenges make competent governance more important, not less. Municipalities are hesitant to rely on an agency caught in recurring fiscal crises driven by its own policy failures. Fare-free transit generated national attention, but reality eventually intervened.

KCATA’s budget problems are not simply the result of this year’s funding gap. They are the cumulative consequence of years of policy decisions that weakened the authority’s financial position and damaged its credibility.

The post KCATA Is Still Paying for the Fare-Free Experiment appeared first on Show-Me Institute.

The city of Herculaneum in Jefferson County is showing how use taxes can be properly added into the municipal revenue mix. A use tax is simply a sales tax on goods you purchase online (or through catalogs) and have delivered to your home. Many cities and counties have added them in recent years as online shopping has grown. Voters often approve them, but sometimes they say “no, thank you.”

Supporters of use taxes say they level the playing field between online purchases and actual stores from a cost perspective, along with raising revenue for local services. That is true, and I have generally been supportive of use tax expansion in recent years. Broadening the sales tax base is a good thing.

However, I have also called for cities and counties to offset the increased revenues from use taxes with cuts to other taxes (at least partly). That approach gives you the benefits of expanding the tax base, equalizing competition between types of retailers, and some increased tax revenues without giving local governments a windfall in tax money. Unfortunately, most local governments have shared my enthusiasm for the first three parts, but not the last one.

But Herculaneum is doing it the right way. Herculaneum has included in the ballot language for its use tax vote on April 7 that, if the use tax is passed, the city will reduce property taxes by ten percent to partly offset the new revenue collections. Regular readers will know that I support making property taxes the foundation of local government revenue, but that doesn’t mean I want high property taxes. If Herculaneum can expand its sales tax base while lowering its property tax rate for everyone, that is a reasonable trade-off for taxpayers and residents.

The post Herculaneum Is Doing Use Taxes Right appeared first on Show-Me Institute.

They say that the best time to plant a tree was 20 years ago, and the second-best time is now. That about sums up my opinion on the City of St. Louis’s one-percent earnings tax, the continuation of which is before St. Louis voters on the April ballot. The best time to start phasing out the earnings tax really was 20 years ago, and the second-best time is still now.

The 20 years in the saying is particularly appropriate in this case, as the Show-Me Institute released its first study on the earnings tax almost exactly 20 years ago. Professor Joseph Haslag, then at the University of Missouri, documented how the earnings tax reduces overall income and employment in the city by encouraging businesses and individuals to locate outside of the city. Additional studies conducted by Show-Me Institute analysts and others have found similar results regarding the harms of local income taxes generally.

Haslag didn’t just demonstrate the harm of the earnings tax; he also recommended a strategy to replace it in order to maintain necessary city services. Haslag suggested changing state laws to allow St. Louis to institute a land tax, which is simply a property tax on the value of the land only. Pittsburgh is one city that had beneficial results from implementing land taxation in the 1980s. Alas, while land taxes are popular with economists and fiscally beneficial, they are politically unpopular to say the least. Needless to say, land taxes have never been adopted in St. Louis (nor has state law been amended to allow them). But the harms of the earnings tax have continued to help drive St. Louis’s population and economy lower, and those fiscal harms were exacerbated during the pandemic.

An easier change (legally, if not politically) than a land tax would have been to start phasing out the earnings tax 20 years ago while increasing a combination of property and sales taxes over time to replace the lost revenues (while cutting spending where possible as well). Poor decision-making over the past two decades has made that already-difficult change almost impossible. Damaging special sales taxes such as community improvement district (CID) taxes are now ubiquitous throughout shopping areas in the city. Primarily used as a smokescreen for harmful corporate welfare, CIDs and other special sales taxes have driven sales tax rates sky high. While the sales taxes have gone up, commercial property values have plummeted. According to the St. Louis Business-Journal, downtown St. Louis office buildings have lost 19 percent of their assessed value since 2019, and even more if you go back further. The largest office building downtown, the AT&T building at 909 Chestnut, paid $5.5 million in property taxes in 2009. It paid just $200,000 in 2024. While that is the most extreme example, similar examples can be found throughout downtown.

The economic situation in the city was already bad, and the tornado that hit in May made it even worse. It was the type of disaster that could make people consider radical changes, and perhaps the land tax is the type of radical change the city needs. (For the record, the Show-Me Institute’s offices were destroyed in the tornado, and while we’re a nonprofit, our office building is subject to property taxes.)

As large parts of the Central West End and the Northside are still recovering from the tornado, St. Louis city government has commendably allowed homeowners with damaged homes to reduce their tax payments, but the long-term impacts on city tax revenues may be significant. The population of New Orleans still hasn’t recovered from Hurricane Katrina and, while the damage to St. Louis was not that severe, the risk is the same.

I suggest it is time to change state law to allow for a land tax, including on land owned by larger “nonprofits” like Barnes Hospital. The land tax could be imposed on the value of the land throughout St. Louis at a level that would gradually increase to make up for revenue lost as the earnings tax is phased out over a period of 10 years (or more). (Other changes would be necessary, including ending the tax subsidies the city gives out.) What makes land taxation so beneficial is that as homeowners and businesses rebuild their damaged property, they aren’t hit with higher taxes for the home or building. The tax is set to the land, which can’t be altered, rather than the building. So, return to the city, rebuild your home or business, make it even larger—do whatever you want—and you won’t be punished with higher taxes.

Pittsburgh in the 1970s was experiencing economic difficulties just as St. Louis is now. Land taxation helped spur investment in Pittsburgh, and it could have the same effect on St. Louis. The city has been hemorrhaging population, jobs, and wealth for decades. Honestly, at this point in its history, what does St. Louis have to lose?

The post It’s Time to Phase Out the Earnings Tax. Honestly, Nothing Else Has Worked . . . appeared first on Show-Me Institute.

Kansas City’s new Bus Riders Union says city hall and the Kansas City Area Transportation Authority (KCATA) need to listen to riders.

On that point, it is right.

For years, KCATA has made major policy decisions without clearly anchoring them to what riders consistently say they value most. The most consequential example was the move to eliminate fares.

In late 2019, the Kansas City Council voted to subsidize fare-free bus trips tied to city service. In March 2020, as a COVID-era public health measure, fares were suspended regionally across RideKC partners. The pandemic decision effectively made the fare-free policy far broader than the original city-centered framing.

But fare-free did not make bus operations cheaper.

Before 2020, several Missouri-side municipal contracts operated under a net operating cost model: KCATA calculated operating costs, subtracted passenger revenue, and allocated the remaining loss among funding partners. In the year before fares were suspended, passenger revenue covered roughly $9 million of operating costs.

The fare-free policy eliminated that recurring revenue stream, but it did not eliminate operating costs. Fare-collection expenses declined modestly, but those savings were far smaller than the forgone revenue, and additional pressures—including ADA complementary paratransit demand—complicated the balance sheet.

During the pandemic, federal funds offset the lost fare revenue. But as one-time COVID-era funding dwindled, the structural question reemerged: who permanently pays for free fares and full service?

Multiple forces drove the budget stress that followed—expiring federal relief, post-pandemic inflation, and negotiated cost-sharing changes. Fare-free was not the only cause of rising costs, but it was a significant one.

Removing a revenue stream embedded in cost-allocation formulas increased the amount that had to be covered by subsidies. Without a dedicated replacement source, the system became more financially fragile. That coincided with contract disputes, service cut threats, and regional withdrawals—all of which riders experience as instability.

Just as important, fare-free did little to address passenger concerns. It did not fix whether the bus shows up on time or is clean and safe. It may have worsened these issues.

Research across major transit systems shows a similar pattern: riders tend to rank frequency, reliability, and safety above fare reductions as the changes most likely to increase their use.

Kansas City has tested fare-free transit. It proved impossible to sustain without stable, dedicated funding, making the service less attractive to other neighboring municipalities.

If the Bus Riders Union wants to ensure riders are heard, the focus now should be on what riders consistently say they need: buses that run frequently, arrive on time, and feel safe.

Unfortunately, KCATA’s past policy missteps have made this more difficult.

The post Kansas City’s Bus Riders Union Is Right about One Thing appeared first on Show-Me Institute.

Thomas Friestad at the Kansas City Business Journal wrote recently that an engineering firm (Gannett Fleming TranSystems, formerly GFT) is moving its offices to the H&R Block building in downtown Kansas City.

Longtime Show-Me Institute readers will recognize H&R Block as a poster child for the false claims that economic development subsidies drive job creation. But this latest news only makes the point more relevant.

The TIF project was adopted in July 2006 and will last for 23 years, through 2029. For the duration of that time, all the additional property taxes and half the increase in sales and income (earnings) tax generated at the site are returned to the developer to offset the costs of developing the site. According to the latest report from the Missouri Auditor’s office, as of April 2023, this subsidy has redirected $23.5 million in property taxes and another $73.4 million in sales and earnings taxes away from the basic services they would have otherwise supported (schools, roads, libraries, etc.), instead sending the money back to the developer.

GFT moving into the H&R Block building means that a portion of the taxes it pays, most notably the 1% earnings taxes levied on each employee, will now also be redirected away from basic services to the developer to pay down the cost of the H&R Block building.

A lot of time is spent talking about how Kansas City loses revenue when businesses leave the city. We need to remember that due to our generous subsidy culture, we often lose revenue even when companies remain.

Side note: One can immediately imagine a scenario wherein developer landlords in TIF districts lower their rents because they know they will capture the additional tax revenue, thus undercutting properties that actually pay taxes. These deals are no way to run a city.

The post The TIF that Keeps Taking appeared first on Show-Me Institute.

The post The Three-Legged Stool of Taxes with David Stokes appeared first on Show-Me Institute.

Fast forward to 2024, and that sales tax is up for renewal. However, because the pension system is much better funded now, city leaders don’t want to renew the 3/4 cent sales tax as it is. That would generate more money for the pension than it needs.

So Springfield leaders put a commission together to come up with ways to alter the tax revenue distributions before it goes to voters in November.

A Kinsley Gaffe is when politicians accidentally say something truthful they didn’t mean to. (This is the second such gaffe worth highlighting in Missouri in the past few months.) In this case, the statement is filtered through the media, I admit, but the reporter must have got the gist of it from local leaders:

The tax will sunset at the end of March 2025, hence why the city has been adamant to put a replacement tax on the November ballot to avoid a lapse in the sales tax that local shoppers would feel. (emphasis added)

A lapse that voters would feel? Meaning a tax reduction Springfield residents may actually like? Dear Lord, we certainly can’t have that. If they like the reductions, they may not vote to increase the tax when we want them to, Oh, the humanity.

The new proposal is for voters to keep a 1/4 cent sales tax for public safety—which can still include pension costs—and change the rest of the tax (1/2 cent) to fund “comprehensive plan capital and parks projects and neighborhood and community initiatives.” (More on that issue later.)

Springfield still has a defined-benefit pension plan for its public safety employees. It should have switched to a defined-contribution plan years ago. At least the city, according to the article, closed the old plan to new members several years ago and, presumably, replaced it with a less generous plan for new hires. That’s progress, but a defined-contribution plan for Springfield employees would have been better for the taxpayers and the city. Throwing tax dollars at the pension fund appears to have worked for now, but further change is needed. As former Show-Me Institute Chief Economist Joe Haslag wrote about the Springfield pension situation years ago: “The existing approach got Springfield into this situation. Some reform is needed to avoid the same problems in the future.”

The post Springfield Wants to Be Darn Sure Its Sales Tax Rate Doesn’t Ever Go Down appeared first on Show-Me Institute.

When Missouri voters approved the ballot initiative legalizing marijuana in 2022, one part of the plan authorized cities and counties to enact a three-percent tax on marijuana sales in their communities (once again upon voter approval). Many cities proposed such taxes in 2023, but several cities in the greater Springfield-area waited until 2024 to consider it, including Nixa, Republic, and Rogersville.. The argument in favor of voters approving the tax is straightforward enough, but the debate over what to do with the new tax revenue is more complex.

“Pigouvian” taxes are taxes levied on certain goods to address their negative effects. They are common and include special taxes in Missouri on items like cigarettes, alcohol, and pool tables (yes, really, pool tables). Tobacco and alcohol consumption impose certain costs on society, and the extra tax revenue can be used to fund services to address those negative effects, like lung cancer research and drunk-driving enforcement. In addition, the taxes make the item more expensive, thereby reducing consumption. Elsewhere, for example, gas taxes may be quite high not only to fund roads but also to encourage public transit. Marijuana legalization will indisputably have some negative societal effects, and the three-percent local sales tax on it can help fund services like municipal police efforts to mitigate those negative impacts. Also, life is not a Cheech and Chong movie—dare to dream that it were! —and cheap pot really doesn’t do anyone much good. I generally support neither new nor high taxes, but the argument in favor of these new local marijuana taxes is strong.

What to do with the money is a more difficult issue. There are two questions: Should the revenue be dedicated to certain uses or sent to the general fund? And should it serve as new revenue or be used to cut taxes elsewhere? Directing taxes into the general fund gives local officials more flexibility to address local needs, but earmarking taxes improves both voter and elected-official decision-making and accountability. In some cases, as with cigarettes, the harms to society are easy to determine. Accordingly, the choice to earmark tobacco taxes to health-related fields, as we generally do in Missouri, is defensible. Legal marijuana, however, will be more like alcohol, with costs and harms to society spreading across a variety of sectors. Should the new sales tax revenues go to policing? Health care? Family services? Who knows? This is why alcohol taxes generally are not earmarked in our state, nor should local marijuana taxes be in these three cities. (However, focusing at least some of the new marijuana taxes on policy services would make sense.)

Politicians will try, as is their wont, to treat the new marijuana tax revenue as manna from heaven. Voters should demand more from them as we approach the elections. A new marijuana tax should not just be an opportunity to raise more revenue. It should also be an opportunity to replace other, more economically harmful taxes. Republic, in particular, has a high local sales tax at 3.125 percent, and perhaps the marijuana tax could be used to lower or eliminate other sales taxes.

Marijuana taxes are an opportunity to improve both the current budgets and the long-term tax environment for cities and counties. Voters in Nixa, Republic, Rogersville and anywhere else with a marijuana tax on the ballot should demand a plan that does both.

The post Pot Taxes Can Help Municipal Kettles Get into the Black appeared first on Show-Me Institute.

My purpose here is simply to respond to one statement in the article by St. Louis’s Mayor Jones:

“I urge those who want to eliminate the earnings tax to show me their plan to replace it, their pro forma on these so-called ‘fiscal cliffs,’ and why cities with much higher earnings tax rates continue to grow,” Jones said in a statement.

I would like to remind people that, as for a plan to replace the earnings tax, the PFM Group out of Philadelphia has provided St. Louis with multiple, enormous reports on fiscal options for the city. Having read these studies, I assure you they go into great detail on these topics. If the city and its leaders aren’t serious about considering and incorporating these recommendations, among others, that’s on the city.

Do some cities with earnings taxes continue to grow? Of course they can. Some cities, like, say, New York City, have qualities and advantages that help them overcome the harms of local income taxes and continue to grow nevertheless. That shouldn’t surprise anyone, but it doesn’t mean local earnings (also known as income or wage) taxes don’t harm cities. Nobody is saying that a city can’t grow if it has an earnings tax. The claim—backed up by evidence—is that they would grow faster without one.

You don’t have to take our word for it (but you should). In Triumph of the City, Harvard economist Ed Glaeser states: “The indirect effect of a local income tax is to encourage richer citizens and businesses to leave.” He cited this study, in which the authors determined that, among other findings, “We estimate that between 1971 and 2001 Philadelphia lost 172,889 jobs because of the increase in city wage tax rates.” (Similar effects were found for New York City.)

It’s one thing to say the city is not in a position to immediately drop the earnings tax in one fell swoop. That’s a defensible position. It’s another to deny that it harms economic growth. That’s not defensible. The worst part, though, is watching the city enact legislation and pass constant tax subsidies that make it more dependent on the earnings tax, instead of trying to be less dependent on it over time. The city has chosen to put itself in this position, and that is regrettable.

The post Yes, Mayor Jones, the Earnings Tax Really Does Hinder Economic Growth appeared first on Show-Me Institute.

Kansas City Mayor Quentin Lucas declared that “Kansas City will not now engage in an intrastate regional race to the bottom that ultimately does little more than fleecing our taxpayers”—which is the right policy position to take! Meanwhile, Jackson County executive and former Royal Frank White echoed similar sentiments, suggesting county taxpayers deserved “loyalty” from the Royals.

In relationship terms, the snap response by Kansas City civic leaders had the tone of a bad breakup and a badly spurned partner. But that tone shifted in recent weeks, after the Royals’ management team confirmed that a second site was also under consideration just east of Kansas City’s downtown, within KC’s city limits.

For a moment, it seemed like a longshot attempt at making up was afoot. Yet, the Royals haven’t said much more to the public about the potential Kansas City plan . . . and apparently they haven’t said much to city leadership about it, either:

Kansas City Mayor Quinton Lucas said Friday the Kansas City Royals need to flesh out details for a downtown ballpark.

Lucas said to KMBC’s Micheal Mahoney on Friday that no one is hearing enough details about the Royals’ downtown plans.

“Here are the things that need to be shared with the citizens of Kansas City — and in my view — today,” Lucas said. “Why the need for a move? What’s the plan for, perhaps, wherever they’re going? And what’s the funding idea?”

Lucas said the longer those questions are unanswered, the more challenging it becomes for the plans to be successful.

The fact that Mayor Lucas suggests that the Royals should stay in Kauffman Stadium is itself somewhat jarring if you know what direction the team was heading in the last few years and what the mayor himself was supporting. From a story in November:

Kansas City, Missouri, Mayor Quinton Lucas predicts a new Royals stadium will be in and near downtown Kansas City. (emphasis mine)

Lucas spoke with reporters minutes after Royals owner John Sherman announced plans to move the team from Kauffman Stadium.

“The Royals will be somewhere, I’m predicting, between the river,” Lucas said. “North of 31st Street, but let’s be even clearer, probably north of the train tracks that are about at 22nd Street. And then probably somewhere between the state line and of course, I would say Woodland (Avenue).”

Take from that what you will. The Royals should pay for their own stadium wherever they go, and if they stay in the Truman Sports Complex, they should pay their way there, too. But for the last year, the Royals staying put has not been what the city has been preparing for. Quite the opposite, in fact.

But while city leaders have every right to ask what a professional sports team is going to want from the public, the public has every right to ask its elected officials what taxpayer resources they’re willing to give away. And that definitely applies here, where city and county representations in private to the team have, to date, not been made public.

Here are some questions Kansas City’s (and Jackson County’s) leaders need to answer about their plans for the stadium:

• How much could subsidizing a new stadium for the Royals cost taxpayers?
• Are the city and county committed to massive new spending on both the Kansas City Royals and the Kansas City Chiefs, or are there fiscal limitations that city and county leaders won’t violate?
• What are those limitations?
• What city services will be affected by these tax expenditure choices?
• And why should Kansas City and Jackson County taxpayers continue to be on the hook for an amenity that the entire region enjoys?

To reiterate, no public money should go to a project like this, but if money is being spent on private sports teams, Kansas City and Jackson County taxpayers deserve respect and transparency. Taxpayer money spent on sports stadiums is a waste, and it also takes away from other vital public services such as policing

Maybe Kansas City and the Royals will kiss and make up, or maybe the team and the city are in an uncanny valley before an inevitable break up. But whether it’s a make up or a break up, billions of taxpayer dollars are at stake.

Update: Royals owner John Sherman told media today: “No one is waiting on us. We are the urging party.”

The post Kansas City’s Courtship of the Royals Is Getting Awkward appeared first on Show-Me Institute.

Expanding the tax base makes for good tax policy, and equalizing the tax difference between competitors is also good policy. There is no reason that a hotel should have its guests pay one tax rate while Vrbo guests pay a lower rate. The time period of any theoretical “infant industry” argument is long past. The short-term rental industry is a major part of tourism and hospitality, and it should be treated the same as standard hotels for sales tax purposes.

Of course, I would like to see an expansion of the hotel tax base combined with lowering the tax rate, but saving money for tourists probably isn’t the top priority for local officials. I’ll have to be content with the hope that increased revenue from expanding the hotel tax base will remove pressure to raise the hotel tax rates in the future.

Like marijuana taxes and use taxes, hotel tax expansion can offer a method for new municipal tax revenues in an economically sound fashion. However, cities should not just use these new revenue sources to simply get and spend more money. They can also be used to replace other, more economically harmful taxes. These include local earnings taxes, high commercial property taxes, the ridiculous “economic development” sales tax, and personal property taxes on business equipment. (I am well aware that hotel taxes are usually dedicated to tourism promotion and not as readily exchangeable as use or marijuana taxes, but that is a choice that cities make [and a defensible one], not some order delivered via lightning bolt by Zeus himself that the cities can’t change if they wanted to.)

That would be a trade-off that would truly benefit cities in Missouri.

The post Short-Term Rentals, Long-Term Taxes appeared first on Show-Me Institute.

When Missouri voters approved the ballot initiative legalizing marijuana last year, one part of the plan authorized cities and counties to enact a three-percent tax on marijuana sales in their communities (once again upon voter approval). Not surprisingly, many local governments in the St. Louis-region are attempting to do just that this coming April. The argument in favor of voters approving the tax is straightforward enough, but the debate over what to do with the new tax revenue is more complex.

“Pigouvian” taxes are taxes levied on certain goods to address their negative effects. They are common and include special taxes in Missouri on items like cigarettes, alcohol, and pool tables (yes, really, pool tables). Tobacco and alcohol consumption impose certain costs on society, and the extra tax revenue is used to fund services to address those negative effects, like lung cancer research and drunk driving enforcement. In addition, the taxes simply make the item more expensive, thereby reducing consumption. Elsewhere, for example, gas taxes may be quite high not only to fund roads but also to encourage public transit. Marijuana legalization will indisputably have some negative societal effects, and the three-percent local sales tax on it can help fund services like county health departments and municipal police efforts to mitigate those negative impacts. Also, life is not a Cheech and Chong movie—dare to dream that it were! —and cheap pot really doesn’t do anyone much good. I generally support neither new nor high taxes, but the argument in favor of these new local marijuana sales taxes is very strong.

What to do with the money is more difficult. There are two questions: Should the revenue be dedicated to certain uses or sent to the general fund? And should it serve as new revenue or be used to cut taxes elsewhere? Economists have long debated the costs and benefits of earmarking taxes for specific uses. Directing taxes into the general fund gives local officials more flexibility to address local needs, but earmarking taxes improves both voter and elected-official decision-making and accountability. In some cases, as with cigarettes, the harms to society are easy to determine. Accordingly, the choice to earmark tobacco taxes to health-related fields, as we generally do in Missouri, is defensible. Legal marijuana, however, will be more like alcohol, with costs and harms (also called externalities) to society spreading across a variety of sectors. Should the tax revenues go to policing? Health care? Family services? Frankly, who knows? This is why alcohol taxes generally are not earmarked in our state, nor should local marijuana taxes be.

Politicians will try, as is their wont, to treat the new marijuana tax revenue as manna from heaven. Voters should demand more from them as we approach the elections. A new marijuana tax should not just be an opportunity to raise more revenue. It should also be an opportunity to replace other, more economically harmful taxes. St. Louis County, with its high commercial property surtax, should use the marijuana revenue as a justification for a surtax reduction. Cities such as University City with the woeful economic development sales tax—a misnomer if there ever was one—should use the marijuana revenue to replace that useless tax. It could be a small part of a larger package to help phase out the earnings and payroll taxes in St. Louis city. And, yes, at a minimum it should replace the anachronistic pool table taxes implemented long ago in the days of seedy pool halls, gangster molls, and bathtub hooch.

There is, unfortunately, one question mark hanging over the upcoming votes. The question of whether a county-level marijuana sales tax will apply countywide or only in the unincorporated areas is unclear and will likely be determined in court. The budgetary implications for counties are enormous, as the revenue difference between the two options is substantial. If county taxes are determined to be in addition to municipal taxes, that could make the total sales tax for marijuana purchases well above twenty percent. A sales tax that is too high is concerning because it might encourage the illegal market for marijuana to continue, as has happened in California. This would nullify one of the purported benefits of legalization.

Marijuana taxes are an opportunity to improve both the current budgets and the long-term tax environment for cities and counties. Voters should demand a plan that does both.

The post Pot Taxes Can Help Municipal Kettles Get into the Black appeared first on Show-Me Institute.

In West St. Louis County, we get to see the City of Ballwin doing the same thing regarding a tax-increment financing (TIF) package that is about to end. Of course, it’s not exactly the same thing. Ballwin doesn’t have gulags or torture and has never invaded Hungary, and I give proper credit to Ballwin for all of that.

The Olde Towne Plaza TIF is ending; not because it uses too many unnecessary “e”s in its name (although it does), but because it has hit the Missouri TIF time limit of 23 years. According to a story in West Newsmagazine, the project and TIF have been a large success (emphasis added throughout):

“It really served to fill two goals: One was to stimulate economic development. The other was to improve the infrastructure. Overall, it was a success,” long-time City Attorney Robert Jones recalled.

Further down, we read:

Finance Officer Denise Keller told West Newsmagazine by email, “The Redevelopment Plan itself was very successful in that an attractive and quality development of retail and service commercial uses has been constructed and maintained, enhancing the tax base and the resulting tax revenues for the city and all other taxing districts within the Redevelopment Area.”

Got it. This tax subsidy has been a big success. God only knows how a rapidly growing suburban region could experience growth without the Kreskin-like ability of city officials to predict the future. But wait, if you keep reading further down the article:

Incremental taxes captured for repayment of the bonds, however, (fell) short of expectations and by the time the bonds mature, there will not be sufficient funds to repay the full amount of the principal due.

So, the project and subsidy were a great success, even though the TIF district didn’t actually pay off the bonds. That’s ok, at least general city funds are not involved here, just the TIF district funds:

Keller added that the bonds have never been an obligation of the city and do not reflect on the financial health of the city.

Thank goodness for that. But wait, if you read further, you see that even though the bonds weren’t an “obligation” of the city:

The city was required by the bond indentures to make an annual contribution toward the repayment of the bonds. The cumulative amount of this contribution to date has been $2.7 million.

I don’t know how you define words like “obligation,” “success,” and “sufficient,” but if you read the full article carefully, this wonderful, amazing, tax-subsidized project experienced high turnover, generated far less revenue than expected, had the city step in to pay shortfalls out of other tax revenues (even if it was not “obligated” to), and the development now has to use an ongoing special sales tax ostensibly targeted for transportation to fully pay off the TIF bonds. All of this while any drive down Manchester Road shows a litany of empty storefronts, brought about in part by numerous municipal tax subsidies used to lure businesses from one place to the other based on chasing the subsidy, not where the best location for their business really would be.

TIF doesn’t work. Politicians, urban planners, and city managers can’t predict the future. To quote P.J. O’Rourke, giving the power of tax subsidies to local politicians is like giving whiskey and car keys to teenage boys.

All of the road improvements Ballwin brags about with the TIF project could have been funded by normal taxes collected over the period of the TIF project, from whatever developed here or elsewhere in the area. Why? Because capitalism works. Frequently, municipal officials throughout Missouri forget that and think that somehow they have the special knowledge to plan their economies in a better way. It’s ridiculous, and in the end it usually fails and you find yourself denying reality to the press.

Stalin would have been proud.

The post Ballwin TIF Ends; Clear Failure Lauded as “Great Success” by Municipal Apparatchiks appeared first on Show-Me Institute.

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This TIF incentive package was previously touted as imposing “no financial risk” on the city, but there’s simply no way to guarantee that a TIF agreement will not have negative financial effects on a city. Along with the numerous other problems posed by TIF (as outlined in my new paper), TIF can pose a financial risk to cities, and it has in Missouri on several occasions across several decades.

In the 1990s, the St. Louis Marketplace TIF bonds were backed by the city, meaning that the city was on the hook for the bond payments if the project did not generate enough revenue. Spoiler alert: it didn’t. A similar situation took place in Independence, Missouri, when a TIF project anchored by a Bass Pro shop failed to meet sales-tax revenue projections, so lawmakers used $3.5 million from the general fund to cover the shortfall in the bond payment.

While these situations aren’t a normal occurrence, there’s clearly no guarantee that TIF won’t present a huge financial burden to the city. Apparently, this is a lesson that Missouri municipalities cannot learn. Local lawmakers should be wary of TIF and bold statements like those made about the Brody Corners project. Its good news for Springfield that this plan was dismissed, and hopefully it won’t return in the new year.

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Susan Pendergrass, David Stokes, and Corianna Baier join Zach Lawhorn to discuss the launch of The Missouri School Rankings Project and MoSchoolRankings.org, a report that Sam Page is asking the St. Louis County Council to use federal stimulus money to avoid budget cuts and the future of the downtown St. Louis Community Improvement District.

Listen on Apple Podcasts 

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Listen on SoundCloud

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For a home with a market value of $1 million (of which there are many in Ladue), the 30-cent increase per $100 of assessed valuation would amount to a tax hike of $570. If similar recent proposals in neighboring cities are any guide, how Ladue voters will respond to this proposal is anyone’s guess. In August, voters in Frontenac approved a very large tax increase, while voters in Clayton rejected a much more modest one (18 cents per $100). In each case, turnout was light, as expected and (perhaps) intended.

The most interesting part of the proposed tax increase is that it’s only for residential property, not commercial. In other words, homeowners will pay it, but businesses won’t. Too often, governments try to export the costs of running their cities to outsiders with tourist taxes, sales taxes, special district taxes, and so on. The best thing you can say about this Ladue proposal is that it deals with property taxes that will be paid by the people who receive the public services. But don’t businesses also benefit from public services like police and fire protection? Of course they do. However, unlike both Frontenac and Clayton, where commercial property makes up a large part of the tax base, commercial property in Ladue is less than ten percent of the tax base. Including commercial property in this tax increase would not make that much of a difference in tax collections, but how voters react will be intriguing.

In Frontenac, the (voter-approved) tax increase actually targeted commercial property with especially large increases, while in Clayton the city proposed the same (voter-rejected) tax increase for each. What is the moral of the story? Voters apparently like targeting businesses to fund as much of their services as they can.

Does Ladue truly need this added money? As stated, the annual deficits Ladue has been running have been large, and that can’t continue. With most city funds going to public safety in recent years, cuts would have to come from police and fire protection. Ladue has very little crime and even fewer fires, but history has shown that people like having higher levels of police and fire protection than may be necessary.

Ladue has received over $900,000 in stimulus funds and will receive over a half-million more in the near future. This is on top of upcoming increases in local tax revenue from higher gas taxes and online sales tax collections passed in the state legislative session. (Ladue voters would have to pass a use tax, which they rejected in 2020, to collect all of the online sales taxes.) I don’t doubt that the cost of providing public services is increasing, but with the stimulus funds, increased property assessments, and other future taxes, do the people of Ladue really need to be hit with approximately $2.5 million in new taxes?

Residents, voters, and taxpayers (most people are all three, of course) generally like the high quality of services found in most St. Louis County suburbs, especially in the more prosperous cities like Ladue. But you can only ask for so much before people start saying “no.” People want quality services; they also like fair taxation and the idea that their cities aren’t just out to gouge them. One thing Ladue has a large number of is country clubs, and on election day, we will see how many voters in Ladue are yelling “Fore!” as they cast their votes.

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A student at Washington University recently opined in his school newspaper that the university should be paying payments-in-lieu-of-taxes (PILOTs) to the cities around the school where it owns property: University City, Clayton, and the City of St. Louis. A complicated question is what to do when Wash U buys homes or apartment buildings within those cities to house students or visiting faculty, and then those properties are removed from the tax rolls because Wash U is a non-profit. From an article in the Post-Dispatch:

To house some of those people, it has purchased many off-campus single-family homes, duplexes and apartment buildings – 11 in Clayton, 53 in the city and 121 in University City.

It also owns several commercial properties – with one of the largest being its 1991 purchase of the old Clayton Famous-Barr for $17.5 million. All those purchases have an impact: The university’s not-for-profit status removes them from the property tax rolls.

The residents in these buildings need police and fire protection, roads, and other public services. When a property is purchased by a university and comes off the tax rolls but still has residents, the cities continue providing services but no longer receive the property taxes. That puts cities in a bind, especially University City and Clayton, which depend more heavily on property taxes than the City of St. Louis. The Wash U writer documents how many other universities pay PILOTS for local services to their cities, including the second-best university in Southwest Connecticut: Yale.

You know who else has written about this issue? Me. I think larger non-profit organizations, such as Wash U, SLU, many senior citizen homes owned by non-profits, and others could be asked to make partial payments of property taxes to cities. As for the City of St. Louis, I definitely think that should be part of a trade-off for eliminating the earnings tax.

Without ending the earnings tax, I don’t think non-profits should be asked to pay PILOTs to the city. (Non-profits are also exempt from the half-percent payroll tax that for-profit companies pay to the city.) Wash U and SLU doctors, administrators, nurses, etc. pay plenty to the City of St. Louis via the earnings tax. University City and Clayton have no such alternative (nor should they). I think partial PILOTs by larger non-profits are a reasonable way to help fund local services so that the tax burden is not unfairly falling on local residents for services used by the non-profits as well.

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As voters in the City of St. Louis prepare to vote on whether to retain the earnings tax in April, the city is in a tight spot. The city and school district need more revenue, which comes about through more taxes. But because taxes are high and a detriment to growth (especially the one-percent earnings tax), businesses are not locating in the city and the economy is not growing. So, to attract new businesses and convince current ones to stay, the city selectively gives out generous tax incentives. These may attract some businesses and residents, but because of the incentives, they don’t provide the tax revenue that the city was after in the first place.

Are you with us so far? Count us among those who agree that poor public schools and a high crime rate are harming the City of St. Louis more than taxes. But if the economy were growing, City Hall and the board of education would have more money to hire more police officers and teachers. It’s as if St. Louis is in its own Catch-22: a problem or situation where every solution is impeded by other conflicts. Call it our Catch 1%.

St. Louis’s “solution” to the problem of losing businesses and residents over the past couple of decades has been to offer generous tax benefits to every politically influential Milo Minderbinder who asks for them. Last year alone, there were 70 million uncollected tax dollars because of various subsidies. That approach has been a failure. It has led to substantial tax subsidies for developers who do not need them, such as the St. Louis Cardinals and their Ballpark Village development. They succeed while paying significantly reduced taxes. Their subsidies have helped them drive out smaller competitors (e.g., Mike Shannon’s) who paid taxes, but now no longer do because, well, they are closed. The use of tax subsidies actually leads to a reduction in tax revenues. That’s Catch 1%.

The same thing goes for the idea that tax subsidies are intended for blighted sections of the city. Clearly, there are parts of St. Louis that are struggling, and these areas might well benefit from the use of tax subsidies. But for the most part they aren’t getting them. Why not? From an economic development official’s point of view, the incentives are misaligned. If you have tax dollars to invest, why not direct them into a thriving area surrounded by other successful businesses? You’ll look that much smarter when the development succeeds—even if it would have been just as successful without the government handout. The projects that truly need the incentives aren’t the sure things . . . and that’s the whole point of the incentives—to bridge the gap between failure and success for a project in an economically depressed area. But in St. Louis, the less a project needs a tax subsidy, the more likely it is to get one. That’s Catch 1%.

So here we are, giving out tax incentives to people who don’t need them in places that don’t need them and still funding city government with an earnings tax that limits economic growth. Could the City of St. Louis operate without the earnings tax if the residents and voters wanted to do so? Of course. Most large cities in the United States do not have local income taxes. One problem (of several) with the tax subsidies and abatements the city gives away is that they make it impossible to rely less on the earnings tax and more on local property taxes, which is how many comparable cities fund their local services. Nobody says it will be easy to phase out the tax, which brings in an estimated $159 million per year. But if voters decided to end it, during the 10-year phase-out period an overall effort toward ending corporate welfare, raising alternative (and less economically harmful) taxes, budget cuts, continued pension reforms, service sharing with other governments (as in re-entering St. Louis County), and privatization efforts (e.g., the water utility) would allow St. Louis to continue to fund necessary services. It bears repeating that most comparable cities, including Chicago, Memphis, Omaha, Tulsa, and Nashville, fund their local services without local income taxes.

As St. Louis City voters prepare to decide the fate of the one-percent earnings tax in April, they do not have a simple choice. But the way the city has been operating for years is not working. The population is still declining, crime rates are high again, and the schools are failing too many students. If the city continues to go along as it has been for years, managed decline is about all we can hope for. Perhaps it is time to break out of the Catch 1% the city is in and do something radical.

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